Financial Times Article

Boy, my last post was in late September and titled Disappearing Sponsors.  I did not also mean disappearing blogger.  Well, I have not gone away yet, although the sales to many alternative investments have gone away.  I will be honest, though, I am thinking of more effective ways to express my thoughts on alternative investments.  This blog will be just one outlet.

The Financial Times does not like links to its website, but it has an article from December 30, 2018, on KKR, Franklin Square, and Blackstone GSO that is worth your time to find and read.  The point of the article is that KKR has initiated big write-downs on some of the loans in the Franklin Square Investment Corp BDC that were originated by Blackstone's GSO.  (This BDC, after its merger with Corporate Capital Trust, re-named itself FS-KKR Capital Corp and trades under the symbol FSK.)  The write-downs is not new news to anyone that watched the falling stock price of FSIC or the lowered NAVs of the FS Investments' non-traded BDCs.  What has caught the attention of analysts is KKR's ballooning of the watch list, which tripled in 2018, and now encompasses 28% of the portfolio.

It looks like the high yield and leveraged loan market is going to be a story in 2019.  The Financial Times has had some good recent articles on the issues facing the high yield market.  In the KKR article noted above, The Financial Times notes that, industry wide, 70% of the leverage loans being issued are "covenant-lite," which means the loans lack the strict controls that would allow creditors to seize assets of under performing loans.  This also means that the underlying business do not have to meet as strict an operating criteria as do loans with stronger covenants.  The saying that "it was all good until it wasn't" could be 2019's leveraged loan market mantra.